Sole Proprietorships

Are you wondering if a sole proprietorship is the right structure for your business? Even though you may be going into business alone, it doesn’t mean that you shouldn’t consider all of your options when it comes to structuring your business.

Sole Proprietorship

Business sole proprietorships are often recommended by accountants and attorneys because of their simplicity. For example, from a tax standpoint, a sole proprietor does not have to file a separate business tax return. A Schedule C is attached to your 1040 and filed with the IRS. Gains and losses from the business are simply combined with other personal taxable items.

However, there are many issues to consider:

With no legal distinction between yourself and your business, any business liabilities are also your personal liabilities. If you are sued, you may receive a judgment against your personal assets which means that you could be risking everything you have for your business.

A sole proprietorship can find it difficult to raise capital, since it can only be accomplished if you can qualify for a personal loan.

Sole proprietorships have been historically limited in their ability to participate in such things as federally qualified pension plans and medical reimbursement plans that are available to other business entities.

Overall, sole proprietorships are risky entities that could cost you and your family all you own, especially considering that no other entity is more scrutinized by the IRS. As a result, the sole proprietorship is not a good long-term business solution.

Advantages:

Ease of Formation

Pass-Through Tax Treatment (i.e., Simplicity of Reporting)

Disadvantages:

Personal Liability

Lack of Continuity

Lack of Investment

Is a Sole proprietorship the right structure for your new business?

Don't wait to take advantage of the protections the law affords you and your business. No matter what business entity you choose, it needs to be for the right reasons. Let our business formation experts help you decide which business entity is right for you by calling 1-800-508-1729.